Grain futures put in a positive close to the week, but ended
well off intraday highs, after the US, in a long-awaited report, cut hopes for supplies and - for
corn - forecast "strong and volatile prices well into summer".

Wheat futures initially soared nearly 4% in Chicago after
the US Department of Agriculture cut its estimate for domestic inventories at
the close of 2012-13 by 38m bushels (1.0m tonnes), to 716m bushels (19.5m tonnes), a bigger drop than
investors had expected.

And the data cast doubt on ideas of a bumper crop in 2013
too, in dashing forecasts of a jump in US winter wheat seedings.

For corn, the USDA revealed that domestic inventories at the
start of last month were, at 8.03bn bushels, down 17% year on year and some
180m bushels fewer than investors had banked on.

Wasde US corn data, 2012-13, change on previous figure, and on (market forecast)

Yield: 123.4 bushels per acre, +1.1 bushels per acre, (+0.8m acres)

Area harvested: 87.4m acres, -0.3m acres, (+0.4m acres)

Output: 10.78bn bushels, +55m bushels, (+115m bushels)

December 1 2012 stocks: 8.03bn bushels, n/a, (+250m bushels)

Marketing year end stocks: 602m bushels,-45m bushels, (-65m bushels)

Sources: USDA, Reuters

The figure followed growing speculation this week that consumption
by US livestock operations has been stronger than previously appreciated in the
latter months of last year.

Some of Friday's data was more supportive to supply hopes, with
the forecast US exports in 2012-13 slashed following a weak start to the season.

"Corn exports are projected 200m bushels (5.1m tonnes) lower, reflecting
the slow pace of sales and shipments to date, and increased pressure from
larger supplies and exports from South America," the USDA said.

Nonetheless, the estimate for US corn stocks at the close of the
season was cut by 45m bushels (1.1m tonnes) to 602m bushels (15.3m tonnes) – the lowest figure for 17 years, and contrasting with market
expectations of an increase.

'Unsustainable pace'

Chicago corn prices following wheat in gaining more than 3% at one point,
with the USDA supporting ideas that the supply squeeze meant no imminent end to
the period of elevated values.

"While stiff competition has limited US corn exports, higher
domestic disappearance leaves the balance sheet historically tight and is
expected to support continued strong and volatile prices well into summer, particularly
in the domestic cash markets," the USDA said.

And this analysis was echoed by private commentators,
including Rabobank, which said that "the drawdown in grain stocks confirmed our
expectations that feed use has continued at an unsustainable pace and higher
prices are needed in order to ration demand".

Late pullback

However, prices of both corn and wheat eased into the close,
with brokers citing reasons ranging from the index fund rebalancing process to
the impact of disappointing winter wheat sowings on improving area available
for spring crops.

USDA US wheat data, 2012-13, change on last year, and on (market forecast)